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profit picture of the record industry would be a very doleful picture.
Mr. Wiggins. The information you furnished earlier was really only meaningful to me insofar as it referred to the per release return. These are gross figures here. The gross figures may disguise an awful lot of poverty within the industry. You can have one person making $1,000, and you can say he is a poor man, but if you get a million people making $1,000, that is $1 billion. But there are still a million poor people out there, even though the aggregate is a lot of money.
And so, the chart that indicated the return per release was a much more meaningful figure to me than the gross figure.
Mr. GLOVER. I agree with you, and that is the proper unit of measure. Mr. DANIELSON. Mr. Pattison.
Mr. PATTISON. Let me put a question to the panel. Suppose, as you predict, the price has to be passed on to the consumer, and the consumer will resist that, and will not buy as many records, or will not buy any records, what would happen then? Why should we care about that, other than that you are all nice fellows, and everything, but why should we care about that? What is our role in worrying about that?
This is not the defense industry, or some essential industry. What is our role in that?
Mr. GORTIKOV. Among the effects could be employment reduction. In terms of public interest, there could be less music available to the public, which is one of the principles of copyright law.
Mr. Pattison. But would not the buying public be making that decision. Is it not up to the buying public if the price of a record goes to $10, and very few people buy it? Is that not up to the public to decide to spend 'it on records, or on boats, or something else?
Mr. GORTIKOV. It is not your direct responsibility to assure that the publishers or the record industry make profit in a given year.
Mr. PATTISON. Or ever for that matter. And would there not be other kinds of adjustments that would be made? Would you not pay less rent? Would you not move to smaller stores? Would you not pay your help less money? Would you not increase your productivity? Do all those things that Adam Smith says you are supposed to do? And maybe keep the price of the record where it is, or even lower?
Mr. GORTIKOV. The public interest here is availability of music, employment, promotion of the arts, those matters that are associated with copyright.
Mr. Patrison. I think the problem that we have here is that we are sitting as a very nonexpert body in a ratemaking case, and with no capability, at least on my part, to make reasonable judgments about that. And I am very troubled by the whole notion that we should decide what the effect of another penny, or a penny less, or a dollar more, or anything else—we are not-we do not have the staff, or the capability of making those judgments, and it is really a very troubling kind of question.
Mr. KAPP. As I tried to point out in my statement, the publishers claim that the rate is negotiated, and since the bill would only raise the ceiling, therefore, it is not an increase.
Mr. Pattison. Let me interrupt. Let's suppose you have 2 cents, or 3 cents—let's suppose you made it 15 cents per tune—do you think there would be negotiation then, or do you think it would go to 15 cents? Let's make it $1 a tune.
Mr. KAPP. Negotiation is always a question of how far down you can go. I'd never be able to bring $1 a tune down to the 2 cents level where it might be profitable, so using your example, I think we would be out of business.
Mr. Pattison. But my point is, would not-if the effect is as you say, less records being produced, and less records being sold, would you not then be going back to the publishers and saying, look, we are not making any money, so we are not paying you 2 cents any more. We are not paying you 3 cents; we are not going to pay $1. We are going to pay you 14 cent, and that is it, or else we are going to hire a bunch of people out of Juilliard School, and put them in the house here, and put them on the payroll, and create tunes, and have them assign their copyright to us as a part of the condition of their employment. I mean, would not those kinds of adjustments end up being made! I am not saying which ones would be made, but is that not all likely?
Mr. GORTIKOV. I can understand your concern about having to be a rate-setting body and the confusion from all the data that we present to you, but I think the essence is that the public is being very well served so far under the present system. I think the figures that we show, and the data the publishers are going to offer you, show nothing to dispute this. All parties are doing well under the system, and there is no need to change what works. So I think you have a very simplistic kind of problem, rather than a complex one, despite the preponderance of the material we are offering you.
Mr. DANIELSON. I am going to have to interrupt. Mr. Gortikov said the magic word—that the others are going to offer some testimony. In order to insure that, with great regret we will bring this to a close. All time has expired on the opposition side, and we will now hear from those in favor of the rate increase.
While they are coming forward, thank you, gentlemen. We appreciate your help. While they are coming forward, I will state that the first witness we have scheduled is Mr. Leonard Feist, executive vice president of the National Music Publishers Association; vice president of the Copyright Society of the U.S.A.; member of the State Department Panel of Experts on International Copyright; and member of the U.S. delegations on revision of the Berne Convention and the Universal Copyright Convention. That is a rather intimidating introduction. But I do not scare very easily, so, Mr. Feist.
TESTIMONY OF LEONARD FEIST, EXECUTIVE VICE PRESIDENT,
NATIONAL MUSIC PUBLISHERS ASSOCIATION
Mr. Fest. I would like to make very clear that I am appearing here today on behalf of the National Music Publishers Association, and not in relation to any of the credentials which you so kindly recited.
Mr. DANIELSON. Thank you. We understand that. I am going to recommend that we move the microphone up closer to Mr. Feist, as I am sure the folks on the back row are as interested in hearing as I am. Thank you.
Mr. Feist. In addition to myself, speaking on behalf of the American Guild of Authors and Composers are Messrs. Marvin Hamlisch;
and Eubie Blake, and on behalf of the music publishers Mr. Robert Nathan and Mr. Ralph Peer. These gentlemen were identified on the fact sheet that was previously submitted to you, along with our comprehensive statement which we have submitted for the record.
Mr. DANIELSON. Mr. Feist, so that all of us can make sure that we know what we are following, it is my understanding that you and your associates have supplied this statement, which I am holding up.
Mr. FEIST. That is correct.
Mr. DANIELSON. Now, what you are really doing is extracting some of the pearls of this statement?
Mr. Feist. The individual witnesses will comment on the statement, itself.
Let me say, by way of introduction, as Mr. Drinan has indicated, the Federal Government should not be telling us what to request when we negotiate with a record company. We are not selling oil; we are selling creative genius. But if it is too late to unscramble these eggs, and the Government must fix some ceiling, then please set it high enough to allow some room for bargaining. The higher the ceiling, the more bargaining there can be.
Most songs are not licensed at the ceiling level, and will not be under the new ceiling. Three times over the past ten years, I have sat in congressional hearings and heard the record companies make the same predictions of doom that they have made today. All of the statistics that you have just heard expect you to overlook two facts, first, that the royalty in the statute is a ceiling, and increasing that ceiling only increases the range for bargaining, and not the rate actually paid for every song. Second, at your hearings 10 years ago, the record industry predicted that a 1-cent increase in the ceiling would push them to increase the price for an album by 20 cents. Since then, without any change in the laws, they have increased the price of each album by $3 or more, without any of their dire predictions coming true. Nor has any of the 112 percent increase in the price the public pays per recorded song gone to the creators of that song, although where would the $2 billion business be without us all ?
Ten years ago, this subcommittee approved the 21/2 ceiling, 21/2 cents. A song that sold 25,000 recordings could not even earn $700 for its creator; nevertheless, all we ask today is a ceiling with the same purchasing power as 21, would have provided 10 years ago. That means at least 4 cents. Even a 4-cent ceiling would give us less real earning power, and a smaller share of list prices than it gave us 10 years ago. But at least a 4-cent ceiling would give the creators of American music some hope of negotiating a fair return.
Mr. Nathan is our next witness.
Mr. DANIELSOx. This is Robert R. Nathan, of Robert R. Nathan Associates, Inc., consultant economist.
TESTIMONY OF ROBERT R. NATHAN, ECONOMIST AND ATTORNEY;
PRESIDENT, ROBERT R. NATHAN ASSOCIATES; FORMER VICE PRESIDENT, AMERICAN STATISTICAL ASSOCIATION; FORMER VICE PRESIDENT, NATIONAL ECONOMISTS CLUB; MEMBER, TIME MAGAZINE BOARD OF ECONOMISTS; CHAIRMAN, PLANNING COMMITTEE, WAR PRODUCTION BOARD; DEPUTY DIRECTOR, OFFICE OF WAR MOBILIZATION AND RECONVERSION
Mr. Nathan. Thank you, sir.
Mr. Chairman, and members of the committee. I have had the pleasure of working with the music publishers on this issue and others for a number of years, and I did have the opportunity to appear here when this issue was first presented.
And let me say very strongly, as an economist, that in my judgment, the Government determination of a ceiling rate has no place in our general economic environment. I agree wholeheartedly with one statement in Mr. Gortikov's presentation this morning: there is no monopoly on music, and plenty of music is available to the public. Thus the setting of a ceiling in 1909, 66 years ago, provides no rational basis and no sound reason for the continuation of that ceiling at this time or, as far as I can see, for the foreseeable future.
From the economic point of view, given the tens of thousands of composers, and perhaps hundreds of thousands of would be composers in this country, and given the large number of record companies—although the record industry is highly concentrated, relative to music publishing and many other industries—there is no monopoly, and no other understandable or justifiable reason for continuing this practice. We ought to ask ourselves—and I think Congressman Pattison did—why the ceiling, why the provision?
Mr. PATTISON. Mr. Drinan asked that.
Mr. Nathan. There is not a national security reason, nor do I see any other reason. Now, if this committee, and if the Senate and the Congress jointly were to decide to continue this provision, which I find not justified from an economic point of view, then it seems to me the next best thing—not the best, but the next best thing—would be to open up the opportunity for increased ranges of bargaining. That is primarily why we recommend very strongly that if continuation of the ceiling rate is called for, as provided in legislation, then the range for bargaining ought to be increased, very substantially. That is a fundamental position which I would like to emphasize strongly.
The second issue that I would like to discuss rather briefly-and I have a chart to demonstrate it in a moment-is the nature of this ceiling rate. Ten years ago, mv associates and I undertook an extensive survey of a large number of licenses handled through the Harry Fox Agency, which accounts for some two-thirds of the total funds that are paid as mechanical rovalties, and we found then a very substantial range of arrangements between the publishers and the record companies.
Now, I do not care how you sweep this thing under the rug, there is no question there are very substantial ranges, and even in the presentation of Dr. Glover this morning, if you look, you will find that approximately half of the arrangements are below the 2 cents ceiling. One can call these stereotyped or categorize them in some other way, but basically, there are very substantial portions of the total amount of royalties that are paid, the total number of the licenses that are negotiated, and the recordings or selections sold, that are set at substantially below 2 cents. There is bargaining.
In 1965, when we undertook this study, we found that the average rovalty rate was 1.51 cents, and now it is 1.62 cents, so the average is still well below 2 cents. There is bargaining. Every publisher to whom I have ever talked will tell you that bargaining goes on, and they can speak for themselves.
The main issue that is presented here, with respect to a variation from the 212-cent royalty ceiling which the Congress enacted 8 years ago now, concerns the matter of inflation that has taken place since then. I would emphasize again that I am talking here about a rate, a royalty rate, not aggregate numbers. If one tried to compare, say the price index with aggregate numbers, one finds that in any growing or expanding area, the aggregate numbers will go far beyond the price index. It is a meaningless comparison. For instance, if one went back to 1909, and studied the automobile industry, I would be surprised if automobile sales today are not a thousand, or many thousand times over what they were in 1909. To say that the cost of living has gone up sixfold, whereas automobile sales have increased a thousandfold, means that the automobile prices ought to be where they were in 1909, is, I think, a meaningless comparison. Here, we are talking about a rate, which is a price, which is a unit cost, and the royalty rate, I think has to be looked upon in that perspective.
Now, if I may turn just briefly to the charts. The first chart I have and by the way, I am only showing here only some of the charts from the numbers that are included in this presentation for you. But here we see a chart, the Consumer Price Index from 1965 through July 1975. You see a phenomenon which is just as disturbing, I am sure, to every member of this committee as it is to most citizens in the United States: we have had a very serious inflation in this country. Prices have risen very substantially, to an unprecedented degree in the entire peacetime history of this country.
Since 1965, when testimony was presented on this issue before this committee, we have had an increase, of some 72 percent in consumer prices. I also did a projection for January 1976 on, I think, the unrealistic expectation when I did this that the bill might be enacted and implemented by then. We would expect about a 78-percent price increase from 1965 to January 1976. Or if we looked at the series on any other basis, we find a very substantial amount of inflation.
Now, if I may turn to another chart. Here we find Chart No. 4. It is entitled Purchasing Power in July 1975, and in January 1976, of the 21/2-cents royalty ceiling rate, either in 1965 dollars, when the testimony was presented before this committee in 1965 prices, and in 1967 dollars, when the 21/2-cents royalty rate was enacted. Let's look at just 1967; we find that in July of 1975, 242 cents enacted in 1967 will now buy only 1.54 cents of the same goods and services as at that time. In other words, the buying power of that 21/2 cents, in those prices, has shrunk to about 11, cents. Roughly, the same thing would be true next January. So we see what has happened in terms of inflation.
Now, the next chart is chart No. 3. I reversed these. This shows, gentlemen, the key element that we are proposing here, namely that if the 21, cents in 1967 were considered an adequate ceiling rate of payment in terms of its command over goods and services, then that 2i2 cents is hopelessly inadequate today, because of rising prices.
If we looked again at only 1967, if today this Congress said we want to preserve that 21,2 cents we enacted in 1967, and wanted to have the same buying power, in July 1975, the ceiling would need to be 4.1 cents per selection. Next January, it would need to be 4.2 cents. So here we see the ravages of inflation in terms of the impact. This is why we are saying, in a meaningful sense, that a 4-cent-plus ceiling royalty is needed for reasonable terms.